Dear Colleagues,

We write on behalf of President McPherson and Provost Simon in response to your recent letters regarding fringe benefit costs.  We share your concern about the need to create a positive research environment at MSU.  At the request of the Provost and the Vice President for Finance, Operations and Treasurer, a new plan to assess fringe benefit costs (Specific Identification or SI) has been under development for implementation July 1, 2004 .  While segments of the campus community have been consulted about various implementation options and operational details of SI, a lack of consistent communication has occurred.  The advantages of SI are that in spite of some complexity it is a fairer procedure; faculty and staff appointed on research grants will be charged for health care costs if they are eligible, and for other benefits that they receive.  The SI plan eliminates the inequities associated with rates that were applied to salaries different from the University average.

As details of the new SI plan have been shared, several issues have been identified by the research community and need to be addressed.  These are detailed below.

Research Grant Transition Issues

To address the research grant transition issues that will arise when the new SI system is implemented July 1, 2004, active grant accounts and pending research proposals submitted prior to January 2004 will continue to be effectively charged fringe benefits based upon the old composite rate-based fringe benefit system for the next three years, or until they receive significant new funding (i.e. a grand-parenting approach will be used to prevent disadvantaging an existing grant).

Please note that all research proposals since January 2004 have been budgeted for and will be charged SI.  Requests for grand-parenting current grants extending beyond three years based upon special circumstances should be addressed to Contract and Grant Administration, and will be considered on a case-by-case basis.

The “composite” fringe benefit rate for “grand-parenting” is estimated to be in the range of 38% for July 2004, an increase from the current actual research fringe benefit rate of 36%.  The composite rate will be calculated and finalized closer to July 2004 and will be recalculated each July to reflect actual costs during the three year transition period.  Please note that the difference between the current “negotiated” research rate of 32.6% and the current “actual” research fringe rate of 36% is the subsidy that the University has contributed to research accounts, which is ending June 30, 2004 .  The University has had to subsidize research accounts because of the under-projection of fringe costs included in the last overhead rate agreement for the period 2001-04.  Due to this direct University subsidy, researchers have been protected from the real cost of fringe benefits for the last three years.

At a more detailed level, the approach to implement SI will be as follows.  Research accounts eligible for grand-parenting will have two fringe benefit transactions applied to their accounts for each payroll beginning July 1, 2004 .  The first transaction will be a charge for fringe benefits using the new SI system.  The second will be an adjustment that will net the fringe benefit cost to what would have been charged under the rate-based system (estimated to be 38% for 2004-05).  Under this approach, the adjustment amount for a particular contract or grant being grand-parented may be either positive or negative, depending on the salary levels of the positions supported by the account.  This approach will be an early alert to principal investigators to the magnitude and direction of the fringe benefit subsidy each grant is receiving or providing. 

Research Associate Issues

To address the high benefit costs of Research Associates under SI, Research Associates will be divided into two groups, those with less than three full years of employment, and those with three or more years of employment.  About seventy-five percent of Research Associates fall into the first category.

·        Those with less than three years of MSU employment will be exempted from the retiree portion of health, dental and prescription costs (currently ~ $2,200).  If you exclude the costs of retirement program participation (see the paragraph below), their SI fringe rate can be as low as 29.9% using MSU's average research associate salary of $35,000 in October 2003. 

·        Those with three or more years of MSU employment will pay the full costs of health (currently ~ $9,200).  As a result, Research Associates that meet the new retirement program participation rules (see next paragraph) can have an SI fringe rate as high as 46.2%, using MSU's average research associate salary of $35,000 in October 2003.

To ensure equitability under the SI system, the retirement program participation rules, e.g. TIAA/CREF, for Research Associates (as well as lecturers and assistant instructors) will be modified to be consistent with other academic employees, i.e. mandatory participation at 24 FTE service months and age 35.  This change will be effective on the later of July 1, 2004 , or upon reappointment.  Currently, Research Associates are eligible for MSU’s 10% matching contribution after two years but are never required to participate.

Graduate Assistants

Effective with the fall 2004 payrolls, i.e. 9/15/04 , graduate fringe costs will be converted from a composite fringe rate to a flat dollar amount for health, and a separate flat dollar amount for tuition and fees.  These flat dollar amounts will be the same irrespective of appointment percent (1/4, 1/2 or 3/4).  The health amount will be applied to fall and spring appointments only, i.e. no health will be charged to summer 2005 appointments and beyond.  This is similar to summer appointments for AY faculty.  Also, as requested by faculty, tuition and fees will be exempted from overhead on projects awarded using the new overhead rates that will go into effect July 1, 2004.

Please see the Contract & Grant Web site www.cga.msu.edu/si.htm for up to date information, including FAQ, regarding SI and the new overhead rates that will be negotiated over the next few weeks.

By action of the Executive Committee of Academic Council the Specific Identification program will be an information item for discussion at the March 30, 2004 meeting of the Faculty Council which is to be held in Room 115 of the International Center at 3:15PM .

We very much appreciate your suggestions.  Additional commentary is welcome as the process continues.

Sincerely,

Bob Banks, Dave Brower, Dave Byelich, Dan Evon

C:   Peter McPherson               

      Lou Anna K Simon

      Fred Poston          

      Academic Deans